Tesla has impediments in selling to Arizonans

Want one of those new Tesla all-electric cars that Consumer Reports has been raving about?

If you’re an Arizona resident, you’ll have to jump through some extra hoops because of a state law designed to protect car dealers.

Yes, you can go take a look at the cars, which start at $70,000, at what the company calls its “gallery” at Scottsdale Fashion Square. You can kick the tires, sit behind the wheel and ask questions.

But you can’t buy one there. And you can’t take it for a test drive.

In fact, Tesla’s employees in Arizona can’t talk much about the price.

Instead, you have to either drive to California or place an order online — with a $2,500 refundable deposit.

It’s not by choice, explains company spokeswoman Shanna Hendriks.

“In order to sell cars in Arizona, you need to have a dealer’s license,” she said. And Tesla has dealerships elsewhere. But not here.

“A manufacturer cannot be a dealer in this state,” said Bobbi Sparrow, president of the Arizona Automobile Dealers Association.

Arizona law prohibits manufacturers from selling directly to Arizona consumers. And that, Sparrow said, is by intent.

“We put that in law in 2000,” Sparrow said.

One purpose of the law, she said, is to ensure that buyers have dealerships available should a vehicle be recalled or need service. And Sparrow said since most areas have multiple dealerships, that creates competition for customers which, in turn, keeps prices down.

“If you’re the manufacturer, you have one set of pricing,” she said.

But Sparrow acknowledged the law is also there to protect dealers who have invested money in setting up a franchise for a specific manufacturer. Allowing manufacturers to sell directly to consumers, Sparrow said, would allow them to financially squeeze out dealers, leaving them with buildings, car lots — and nothing to sell.

She said most other states have similar laws.

“They’re trying to buck the system,” Sparrow complained.

So far, Tesla has gotten around the laws in Arizona and most other states because the transaction technically occurs in its home state of California. That has led legislators in such states as North Carolina to propose tightening their dealership laws.

Hendriks said Tesla is fighting new legislation and, in some states, challenging existing laws.

“It’s a huge hindrance to customers who want to buy our vehicles,” she said. But Hendriks said Tesla has managed to work within existing Arizona law and is selling vehicles to Arizona residents.

“It’s a great market for us,” she said, though Tesla would not disclose specific Arizona sales.

The publicly traded company’s most recent quarterly report showed $55.2 million in sales. But with the cost of the vehicles at $461.8 million and nearly $102 million in research and sales costs, it still posted a $4.6 million loss from operations.

Tesla also says it is receiving orders at a rate of more than 20,000 cars per year worldwide.

“Would our sales be higher if you could test drive a car by going to the mall and kicking the tires there?” Hendriks said. “Possibly.”

There are options for would-be buyers who want to do more than sit behind the wheel at Scottsdale Fashion Square and pretend to drive.

“You have to go to Southern California,” Hendriks said.

“Or if you find yourself in southern Colorado, you could test drive there,” she continued. And the law in New York allows test drives at company stores there.

And once or twice a year, Tesla brings one of its vehicles for Arizona, but not to the gallery location.

“We pick a route around Scottsdale or whatever city we come to,” Hendriks said.

“People sign up for a test drive,” she said. “They get in. They test drive. And they leave.”

Hendriks stressed that, because of Arizona law, no one can talk price or take orders.

Tesla could get around that by having even a single dealer, not owned by the manufacturer, to do sales and provide service. And she said the company seems content to keep things as is.

In prepared comments, Elon Musk, the company’s chairman, chief executive and product architect, said he believes that by the time most people head to a dealership, they’ve pretty much decided what car they want to buy. And most often, Musk said, it’s the same brand as they now drive.

“At that point, it is largely just a matter of negotiating with the dealer on price,” he wrote.

Musk said that Tesla, which has no built-in owner base, would be at a disadvantage in its ability to educate customers if it were located at dealerships. He said the reason for the decision to position stores and galleries in areas of high foot traffic and visibility “that people regularly visit in a relatively open-minded buying mood.”

None of that, of course, precludes Tesla from having its galleries and contracting with existing car dealers to sell vehicles. But Musk said he sees no benefit to that, saying it would put sales people in the position of explaining the advantages of an all-electric vehicle while trying not to undermine their traditional business of moving gas-powered cars and trucks.

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